CCP Recovery & Resolution - the last steps

Los Angeles

The European Parliament’s newly released draft report on the Recovery and Resolution of Central Counterparties, seeks to increase the safeguards and streamline the incentives for all participants in CCPs - so as to ensure that they are all fully committed to the resilience of these systemically important market instruments.

Speaking today, Dr Kay Swinburne MEP, Vice Chair of the Economic and Monetary Affairs Committee and co-author of the proposal said;

‘The G20’s commitment to an international framework for central counterparties and the appropriate model of risk mutualisation, means that clearing derivative instruments is a truly global operation.

In order to ensure business continuity, it requires transparency and legal certainty in both planning recovery measures and in the execution of resolution - so that all participants, regardless of location, nature or size are confident that they will receive fair and equitable treatment. 

Our preliminary drafting reflects the view that every tool and action described in both the recovery and resolution plan, should be examined in light of how it affects the incentives for each participant, ensuring that they are all tied into the success of the CCP.

Above all, the report seeks to ensure that those who do not have a say over the operational management of CCPs; the clients of clearing members, indirect clients and ultimately, the tax payer - are given their rightful consideration in terms of safeguards and regulatory oversight.

By their nature, CCPs bring together a number of different vested interests. It is vital that this is recognised within the Resolution colleges, the Resolution committee within ESMA, and in general information flow. 

The report emphasises the resilience of a CCP, especially with respect to the extensive tools allowed in the recovery phase but ultimately, the success of this regulation is conditional on half of it - the resolution process - never being used.